Sequoia-Instagram Deal Appears to Be Pure Rumor; That Said, Let the Bidding Begin

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It’s a chaotic week for Instagram. First it becomes the darling of the app world, then its investors Andreessen-Horowitz decide to double-down on competitor Picplz instead, effectively making the company an orphan. Of course it’s one sexy little orphan half of Sand Hill Road would just love to adopt. (Insert Amazon joke here.) Cue swirling rumors that Instagram is in the process of putting together a series A and even weirder rumors that the company is selling to Facebook. We’ve called Instagram, people close to Instagram and the top five likely suspects that would be doing the deal or have knowledge of that deal and every single one has told us both rumors seem made up out of whole cloth, and that while the company has had the normal “Ok, we’ll call you when we’re ready” conversations around the Valley, no deal is imminent.

“We’re not selling to Facebook, we are not selling to anyone and we are announcing that to our users because they have been worried,” Instagram CEO and co-founder Kevin Systrom says. “Of course at some point we’re going to be raising a round, but I haven’t even created a pitch deck. I haven’t signed a term sheet. We’re sitting in the office programming all day. We’re just not at the stage where we need to raise a series A.”

Indeed, the rumors seem to have caused more problems in the short term for the hot, young company. Several investors I spoke with who’d been promised a hearing when Instagram was ready to raise money woke up today to stories saying the deal was already underway. According to a few sources, Instagram has had to do some damage control telling investors as late as this afternoon that indeed, there is no deal on the table and they still promise to give the irked VCs a hearing when they’re ready.

So where did the rumors come from? It’s possible they came from a misunderstanding, a VC hoping to get the company moving or from someone connected to Instagram, hoping to spin the orphan-story in a new positive direction. The first seems the most likely. I don’t think it’s the last one. This isn’t a company that needs to bait the press with false rumors to get a good deal. At the end of the day it’s all a moot point. In today’s venture world, any startup this hot can raise money by snapping their fingers. Not that they needed it, but the story probably served to get more bidders in the deal, which will no doubt push the valuation higher than companies are already getting in these inflated times. The story may not be true, but it may well turn into a self-fulfilling prophecy.

Stories like these are a hard call to even write, because at some point, we all know the company will raise money. That’s how startups work. But given that we haven’t found a single source to confirm it on or off the record it feels worth noting.